Dairy Market Situation & Outlook Michigan Agricultural Credit Conference

Mark Stephenson, Ph.D. Director of Dairy Policy Analysis

1400.0%

1600.0%

1800.0%

2000.0%

2200.0%

2400.0%

2600.0%

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

AllMilkPrice

Remember When…

MPP Ration Value

$0

$2

$4

$6

$8

$10

$12

$14

$16

2000 2002 2004 2006 2008 2010 2012 2014

Corn SBM Alfalfa

0.0000

2.0000

4.0000

6.0000

8.0000

10.0000

12.0000

14.0000

2000 2002 2004 2006 2008 2010 2012 2014

MPPMargin

Annual MPP Margin

Highest Margin Ever!

Average Daily U.S. Milk Production M

illio

ns o

f Pou

nds

Percent Change in U.S. Milk Production

Number of Cows

9,150

9,170

9,190

9,210

9,230

9,250

9,270

9,290

9,310

9,330

9,350

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1000sofCows

2012 2013 2014 2015

Milk per Cow per Day

56

57

58

59

60

61

62

63

64

65

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

MilkperCowperDay

2012 2013 2014 2015

A Tale of Two Regions…

0.4%

-3.09%

-0.44%

1.64%

3.88%

-3.14%

4.77%

3.59%

-1.91%

3.62%

3.95%1.71%

3.83%

8.19%

1.63%

0.29%

0.64%

11.16%

-0.38%

0%

4.97%

2.22%

4.41%

2.85%

3.97%

3.05%

-1.35%

2.36%

-5.95%

1.74%

-6.99%

1.07%

-6.37%

1.13%

6.89%

8.36%

0.07%

3.43%

-1.55%

0.94%

6.89%0.1%

-0.27%

-0.47%

1.04%

-7.87%

3.47%

3.87%

-6.92%-7.87%

Change in Milk Production—First Three Quarters

Worst CA Drought in 1200 Years

Comparative Feed Cost Data

Wisconsin

Price of Hay = $150

Price of Corn = $3.47

Price of SBM = $370

California

Price of Hay = $260

Price of Corn = $5.01

Price of SBM = $420

Impact of Feed Costs Milk per Cow per Day

50

52

54

56

58

60

62

64

66

68

70

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

AverageDailyPoundsperCow

California

Wisconsin

Impact of Feed Costs Milk per Cow per Day

50

52

54

56

58

60

62

64

66

68

70

72

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

AverageDailyPoundsperCow

California

Wisconsin

Michigan

All Milk Price

$12.00

$14.00

$16.00

$18.00

$20.00

$22.00

$24.00

$26.00

$28.00Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

CAAllMilkPrice

WIAllMilkPrice

MIAllMilkPrice

Opinions Change Over Time

Opinions Change Over Time

MPP Margin Forecast

Opinion as of Sept 30, 2014

Opinion as of Oct 23, 2015

Consumer Confidence

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

ConsumerConfidence

ConsumerConfide nce

Consumer Confidence

Restaurant Performance Index

96

97

98

99

100

101

102

103

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dairy Products are a Good Buy BLS —Dairy and Related Products

100

120

140

160

180

200

220

240

200420052006200720082009201020112012201320142015

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

2000 2002 2004 2006 2008 2010 2012 2014

MonthlyRollingAveragePercentofSolidsExported

We Need Exports!

U.S. Versus International Prices

U.S. Versus International Prices

U.S. Versus International Prices

U.S. American Cheese Stocks

550,000

570,000

590,000

610,000

630,000

650,000

670,000

690,000

710,000

730,000

Jan FebMarAprMayJun Jul AugSepOctNovDec

1000sPounds

AmericanCheeseStocks

2011 2012 2013 2014 2015

U.S. Versus International Prices

U.S. Butter Stocks

Global Dairy Trade Index

500

700

900

1,100

1,300

1,500

1,700

2013 2014 2015

GDTPriceIndex

U.S. Farm Milk Prices are Holding Up Better than Most

$18.38

$13.61

$10.61

Exports Need a Boost

Other Factors

Export Competitors’ Milk Supply

Last year New Zealand milk production was up 12 % YOY.

This year, New Zealand is forecast to decline by 2%

The European Union is forecast to be up about 1.2% with quotas now off

The NZ loss is more than offset by the EU’s increase.

Can We Tap on the Brakes? Strongest El Niño in 50 Years!

The Option to Producing Milk

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

2008 2009 2010 2011 2012 2013 2014 2015

CullCowPrice

My Forecast…

Our relatively strong U.S. economy is helping consume dairy products

Dairy exports could become more of an issue in the next few months (watch inventory levels)

My deduction is that the MPP margin will be worse than futures forecasts now suggest through the first half of 2016

Class III up 50¢, Class IV up $1.80, All-Milk up 80¢ — increase does not begin until 2nd half of 2016